TBW and FDIC battle for control of funds

Monday

Aug 31, 2009 at 6:17 PMAug 31, 2009 at 6:19 PM

About 50,000 mortgage and escrow checks sitting in frozen bank accounts and sent by former Taylor, Bean & Whitaker Mortgage Corp. customers are the subject of a legal standoff between the bankrupt lending giant and the Federal Deposit Insurance Corp., both of which want control of the $1.9 billion in funds.

By Fred HiersStaff writer

About 50,000 mortgage and escrow checks sitting in frozen bank accounts and sent by former Taylor, Bean & Whitaker Mortgage Corp. customers are the subject of a legal standoff between the bankrupt lending giant and the Federal Deposit Insurance Corp., both of which want control of the $1.9 billion in funds.FDIC officials on Friday filed a motion in the U.S. Bankruptcy Court in Jacksonville, which is overseeing Taylor Bean’s dismantlement, to allow the deposit insurance company to have access to the money, frozen in more than 100 Colonial Bank accounts, and to force Taylor Bean to hand over its records so the money can be disbursed properly.“Simply put, (Taylor Bean) is holding hostage hundreds of thousands of homeowners and each day of delay is causing mounting and growing harm to individual homeowners as a result of (Taylor Bean’s) refusal to respect the termination (of Colonial Bank’s business relationship with Taylor Bean),” FDIC lawyers said in their motion.Taylor Bean lawyer David Dantzler, who said Friday his client had no interest in the money frozen in Colonial’s accounts, said Monday the company changed its mind now that FDIC wants the money.The legal headbutting between FDIC and Taylor Bean is more than semantics.At stake for former Taylor Bean customers is money they’ve sent to Colonial and Taylor Bean for their home mortgages and escrow payments, meant to pay for home insurance and real estate taxes.On Monday, Taylor Bean filed a counter motion, claiming to be far better suited to disburse those monies than the FDIC.“Taylor Bean is in the best position …to oversee this,” Dantzler said. “In our view it’s the preferable way.”Taylor Bean still has records of all its former customers and can best sort through those checks to make sure investors, who bought bundled mortgage securities, get paid and that home insurance and tax bills are paid, Dantzler said.In addition, Taylor Bean still has its computer systems to process those frozen checks.“Give us all the borrower money and we’ll reconcile it, we’ll clean it up,” Danztler said.Allowing Taylor Bean to sort through that $1.9 million and determine where those checks should be spent, is part of what bankruptcy court is all about, Dantzler said, citing that Taylor Bean is now under bankruptcy supervision and has a new board of directors.“(Taylor Bean) is the only party that has the systems, expertise, and institutional knowledge required to perform these reconciliations and allocation activities…,” Taylor Bean’s motion said. “Given the …procedural safeguards attendant to this court’s jurisdiction, coupled with TBW’s new governance and management structure…TBW is well positioned to perform the reconciliation and allocation work…”When asked, Dantzler said Taylor Bean would also continue to collect a servicing fee for processing the checks.FDIC officials said in their court motion that Taylor Bean shouldn’t be allowed near the money.The FDIC made numerous demands throughout August of Taylor Bean for homeowner information so it could use those frozen monies to make needed payments to investors and pay homeowners’ escrow and tax bills.“In some instances (homeowners have) received notices that their insurance policies will be canceled or that their real estate taxes are overdue,” said FDIC lawyers in their court motion. “The harm being caused to individual homeowners is an issue that has been continuously raised and pressed by regulators.”Colonial Bank originally froze Taylor Bean’s accounts on Aug. 6, after federal agents raided the mortgage lender’s Ocala headquarters Aug. 3. Taylor Bean had almost all of its bank accounts at Colonial. Colonial was Taylor Bean’s sole lender when it came to funding mortgages.On Aug. 4, the Federal Housing Administration pulled its accounts from Taylor Bean, no longer allowing it to underwrite FHA’s mortgages. Ginnie Mae and Freddie Mac did the same. Within 24 hours, Taylor Bean lost 95 percent of its business, totaling nearly 500,000 mortgage accounts worth $80 billion.By Aug. 11, FDIC ordered Colonial Bank to no longer perform any financial transactions with Taylor Bean without FDIC written approval.On Aug. 14, the Alabama Banking Department closed Colonial Bank and the FDIC was appointed the receiver of the bank’s assets. The FDIC later oversaw the purchase of Colonial Bank to BB&T.When Taylor Bean filed for Chapter 11 bankruptcy protection Aug. 24, the court clamped down on all of Taylor Bean’s remaining business, including the frozen Colonial accounts.During August, the Florida Office of Financial Regulation, which licenses mortgage companies, also suspended Taylor Bean’s licenses to originate and service mortgage loans. A dozen other states followed suit and dispatched their own cease and desist orders, stopping the former mortgage giant from doing business in their states.The FDIC on Friday argued in its court petition that “(Taylor Bean) can not properly service the mortgages while under investigation from numerous state and federal governmental bodies…“(Taylor Bean) can only do additional harm to the homeowners by holding the required information, which apparently is what (Taylor Bean) seeks to do for unknown reasons.”The bankruptcy court will hear the case Sept. 11 in Jacksonville.